Wednesday, November 25, 2009

The U.S. Postal Service has some mailers in a panic because it is reportedly planning to issue complex, last-minute changes to the rules for Full-Service Intelligent Mail discounts.

Not to worry: After getting a sneak peak at the rules that will supposedly be released Friday to mailers and to the employees who will enforce the rules, Dead Tree Edition offers this simple, exclusive analysis: Using Full-Service Intelligent Mail barcodes (IMbs, AKA FUBAR codes) is like having a first-class cabin on a luxurious cruise ship -- The Titanic.

In The Postage Discount No Mailer Wants, Dead Tree Edition explained two days ago a few of the ways the FUBAR code has been a disaster so far. As if to underscore that article's point, postal officials revealed to some mailers today a number of rules changes that they might announce on Friday for implementation three days later on what Lisa Bowes at Intelisent is calling Black Monday. The Association for Postal Commerce (PostCom) noted that the proposed changes have to do with "Full-Service IMb Verification procedures and error tolerances and postage consequences.

Bowes sums up postal executives' thinking on the FUBAR code this way: "Let’s acknowledge that there are major issues with Intelligent Mail, but proceed as if 'everything is fine' anyway."

Another of her top ten thoughts today from the "Intelligent Mail think tank": "Let’s write and then continually edit/update at least a dozen different guides and specifications necessary to do Full Service Intelligent Mail."

I know what you're thinking: "OK, Mr. Tree, I'm so interested in these new rules that I can't wait until Friday. I've already called my relatives to tell them I'm skipping Thanksgiving dinner to get to work on this, so give me the details."

Here you go: They're rearranging the chairs on the deck, and the captain insists on trying to break the record for fastest crossing of the Atlantic. Yes, this will be an historic trip. No, you don't want to be on it.

For the foreseeable future, that's all you need to know about Full-Service Intelligent Mail.

Sunday, November 22, 2009

With less than a week to go before a new postage discount debuts, knowledgeable mailers want nothing to do with the new program.

It’s officially called the full-service Intelligent Mail barcode (IMb). But as the horror stories and unresolved problems rack up, Dead Tree Edition hereby dubs it the FUBAR (Failed Unbelievably Bureaucratic Addressing Regulations) code. Those of you with military experience know another meaning for FUBAR, and the IM program certainly fits that definition as well.

“Most, if not all, Standard Mailers are steering clear of Full Service ACS [address correction],” Lisa Bowes wrote recently at Intelisent’s Postal Affairs Blog. “Full Service ACS may be pretending to be ready for prime time, but the reviews so far are negative.”

Many Periodicals mailers are also spooked about the Intelligent Mail program after hearing how it cost Time Inc. more than $90,000 in duplicate address-change charges in a period of just two months. Newsweek, often a leader on postal issues in the magazine industry, spread the word among publishers a few months ago that it was not putting any more resources into Intelligent Mail.

Postal officials in charge of the much-delayed IM program gave their usual everything-is-on schedule presentation at last week’s Mailers Technical Advisory Committee meeting. (“This ship is unsinkable! Ooh, look at the pretty iceberg.”) And once again they baffled mailers with yet another broken promise. The Association for Postal Commerce (Postcom) summarized the situation this way:

“Despite the Postal Service’s repeated assurances that it would not establish error tolerances and consequences for IMb Full-Service mailings until both the USPS and industry have more experience with the complexities of Full-Service and data can be collected and analyzed, the USPS said its verification procedures and consequences will take effect on November 29, 2009 – the date the IMb Full-Service price differential takes effect.”

The discounts amount to 0.3 cents per piece for First Class mail and a whopping 0.1 cents per piece for Standard and Periodicals. But the penalty for putting unreadable IM bar codes on mail pieces can easily be several cents per piece. The Postal Service has not standardized the process for determining whether such bar codes are readable, so mail that gets the green light from postal equipment at a printing plant might get flagged as unacceptable when it gets to the Postal Service’s sorting machines.

Bowes noted Friday that the IM program’s list of “issues” (problems) has grown to 16 pages, more than 100 items, and offered a hilarious translation of a gobbledygook advisory that IM officials issued that day. Her take on one of the mealy-mouthed statements: “A bunch of stuff is broken, and the USPS knows about them, but it is still full steam ahead.”

One of the issues for which the Postal Service was not prepared is that procedures need to be changed for letter carriers, writes Monica Lundquist of Window Book, Inc. Letter carriers typically cross out the traditional barcode when they handle a mail piece with an old or bad address, preventing the piece from getting redirected to the same bad address after it goes through processing for address-correction notification.

“If the Intelligent Mail barcode (IMb) is obliterated by the mail carrier, it will not be able to be scanned . . ., which means that the USPS will not be able to process the address corrections in the Intelligent Mail environment.” The solution, she says, is to train letter carriers how to handle poorly addressed pieces that have an IMb, but “the likelihood of this training getting accomplished quickly and thoroughly is not very high.”

It's a simple piece of legislation you could call the Publication-Paper Manufacturers Protection Act. Or perhaps the Bankrupt The Canadian Pulp Industry Amendment.

At barely 100 words, Rep. Steve Kagen's recently introduced bill never mentions pulp, paper, or black liquor. But, if enacted, H.R. 4066 would indefinitely continue the black-liquor credits that have been worth billions of dollars this year to U.S. pulp mills. Kagen, a Democrat, represents a section of northeastern Wisconsin dotted with such mill towns as Green Bay and Appleton.

At least 32 companies operate kraft pulp mills in the United States and are probably receiving more than $2 billion per quarter in "alternative fuel mixture" credits for powering their mills with a mix of diesel fuel and black liquor, a pulp byproduct. The companies sell the pulp to other manufacturers, often overseas, or use the pulp to make such products as copier paper, packaging materials, and high-quality publication papers.

The credits have been a nice boost to the bottom line for some of the companies. For others, they have been a lifeline -- especially for makers of coated paper and other publication grades, which have been hit especially hard by declining prices and demand this year

The stock of Verso Paper, the country's #2 coated manufacturer, is so beaten down that it would have been cheaper for the federal government to buy the company outright rather than to pay it the black-liquor credits it has earned so far this year. Privately held, and heavily leveraged, NewPage, the #1 coated maker, seems to be in an even more precarious state.

Today's prices are below the cash costs of many U.S. mills, NewPage executives say. They say that if the black-liquor credits expire, as scheduled, at the end of this year, some mills will either have to raise prices or shut down. Some market observers think the consequences would be even more severe -- bankruptcy reorganization for one or more U.S. companies.

But extending the black-liquor program would be devastating for many Canadian manufacturers, which sell much of their product in the U.S. without benefit of a $200-per-ton government subsidy. Fraser Papers blames the program for driving it into bankruptcy reorganization, and such companies as Tembec and Catalyst Paper are struggling to stay afloat while competing against the subsidized products.

A permanent U.S. program would either force Canada to answer with its own subsidies or to watch its pulp industry die. (Canada's answer to the U.S. subsidies so far is a less generous program that helps pay for capital investments.)

Kagen's bill is likely to face opposition from those who say the government's alternative-fuels efforts are supposed to encourage the development of new bio-fuels, not to reward companies for merely doing what has been standard practice at pulp mills worldwide for decades.

Thursday, November 19, 2009

The U.S. Postal Service’s workforce reductions did not keep pace with declines in mail volume the past two years, but postal officials indicate that may change this fiscal year.

Mail volume was down 13% and revenue was down 9%, but the number of career employees declined only 6% in the fiscal year that ended September 30, postal officials revealed this week. The previous year, volume declined 4% while career employees decreased 3%.

Postal officials revealed their projections Wednesday that both mail volume and the number of career employees will decrease by 6%. Revenue is only projected to decline by 3%.

With labor constituting about 80% of the Postal Service's costs, it has been scrambling to reduce its workforce the past couple of years in light of decreasing mail volumes. As the economy shows signs of climbing out of the recession, the Postal Service's cost decreases this fiscal year might actually exceed its revenue reductions.

A lot of numbers have been flying out of L’Enfant Plaza (USPS HQ) and elsewhere this week regarding the Postal Service. Here’s a summary of some key ones:

• 20,150: Employees, as of Oct. 31 who accepted the early-retirement offer made in August. USPS had planned for up to 30,000 to accept. Please see What the Postal Service Left Out of the Early-Retirement Deal and The Postal Service's Early-Retirement Snafu for more information the offer and its flaws.
• 40,110: Decrease in career employees during the past fiscal year, which ended Sept. 30 – a reduction of : 6%. Of the major categories of career employees, the decreases ranged from 3% for those in or related to headquarters to 9% for supervisors and managers in the field and also for clerks. Postmasters were down 6%, mail handlers and city carriers each decreased 5%, and rural carriers and building and equipment maintenance personnel were down 2% each.
• 12%: Decrease in the number of career employees since 2005, ranging from 2% for headquarters to 20% for clerks.
• 13%: Decrease in the number of non-career employees in just the past year after several years of relatively steady levels.
• 53,000: Projected decrease in full-time equivalents this fiscal year. That suggests another big cut in work hours for non-career employees.
• 36: Number of deliveries per hour in FY2009, up from 30 four years ago. Delivery operations are a productivity bright spot for USPS: There were 8% fewer career carriers but 4% more delivery points than there were four years ago.
• 13%: Decrease in number of mail pieces last year – including drops of 8% for Periodicals, 9% for First Class, and 17% for Standard.
• 223: Increase in the number of post offices, stations, and branches during the past year. At 36,946 facilities, the total has decreased by less than 1% in the past four years.
• -0.3%: The likely change in the average monthly Consumer Price Index for 2009, which sets the ceiling for annual increases in most postal rates and is used in determining some cost-of-living pay increases. Even before release of the October CPI, which was lower than a year ago for the seventh month in a row, postal officials had aalready announced they would not increase most rates in 2010.
• 25% to 30%: Projected decrease in paper consumption for JC Penney catalogs next year as a result of discontinuing its “big books”. No word on how much less its postage bill will be, but the move can’t be good news for the Postal Service.
• 1,869,168: Number of October 26 issues of Newsweek that were mailed in the U.S., down at least 600,000 from a few months ago and more than 1 million from two years ago. As it has reduced its circulation this year to match its lower ratebase, the weekly magazine has cut back drastically on free copies and low-priced subscriptions, according to a statement it filed with USPS. And its annual postage bill has also decreased by millions of dollars.
• 34%: The increase in U.S. credit-card solicitations during October versus the previous month, according to Mintel Comperemedia. That’s the first significant monthly increase this year, though October levels were still lower than a year ago.

Wednesday, November 18, 2009

You may be a printing geek if you:
1. Hear “PMS” and think first of ink. (And you’re a printing supergeek if you hear about a woman having PMS problems and think, “I wonder if she’s just tried using process colors.”)2. Know that dot whacking in public won’t get you thrown into jail.
3. Realize that a debarker belongs at a pulp mill, not a veterinarian’s office.
4. Cringe when someone says “red ink” and find yourself reflexively responding, “It’s magenta.”
5. Don’t snicker when someone refers to blow-ins.
6. Are aware that commingling isn’t something you do at a networking function.
7. Understand that there’s nothing intelligent about the Intelligent Mail barcode.
8. Know that “too much showthrough” does not refer to a black bra under a white blouse.
9. Realize that dot gain has nothing to do with that weight your Aunt Dorothy has put on. (And you’re a printing freakazoid if you insist on saying “tone value increase” instead of “dot gain”.)
10. Know how to spell “supercalendered” even though spell-check keeps telling you “super calendar”.
11. Reply “Additive or subtractive?” when your child asks about primary colors.
12. Assume a woman worked in prepress if she says she’s a retired stripper.

Believe it or not, this article was inspired by an excellent -- and far more serious -- guest column called "You Know Print Buying Is Your Passion When" that was posted at Bostonprintbuyers.com but is no longer available. But if you’re really a printing geek, or aspire to be one, you are probably already a regular reader of “Margie’s Print Tips” at that site.

Monday, November 16, 2009

Never underestimate the power of American ingenuity when it comes to taking maximum advantage of tax breaks. And never underestimate the ability of Congress to mess up a calculation involving money.

Pulp and paper companies' 3rd Quarter earnings statements suggest that the industry is earning more black-liquor credits than analysts thought possible and far more than Congress projected.

Publicly traded companies racked up more than $1.8 billion in the controversial credits for the pulp byproduct from the U.S. government, according to an exclusive Dead Tree Edition analysis of Securities and Exchange Commission reports. Most of the companies would have been unprofitable without the credits, and some were unprofitable even with them.

Through the end of September, the public companies had earned more than $4.7 billion for mixing diesel fuel with the pulp-mill byproduct and then burning the mixture to power their mills. (See the accompanying article, Black Liquor Scorecard: $4.7 Billion Through September, for a listing by company.)

With more than one-fourth of the country’s kraft-pulp capacity in the hands of private companies, the numbers indicate that the industry earned well over $2 billion in credits during the quarter and about $6 billion during the first nine months of the year. At this rate, by the time the program expires at the end of this year, the U.S. pulp and paper industry will blow past the $8 billion that analysts had said would be the maximum it could earn from controversial program.

ERA Equity Research Associates, which earlier this year projected the program would yield $6.6 billion, recently estimated it would $8.5 billion. The earlier estimate assumed an 85% operating rate, but U.S. mills have been running full steam for months because of rising prices and the generous subsidy. Some companies’ numbers suggest their mills are squeezing more than the usual amount of black liquor from the wood they process into pulp.

Congressional Goof
Congress still seems to be using a $5 billion estimate for the program, an error that could affect healthcare legislation it is considering. The faulty estimate is based on a September report from its Joint Committee on Taxation (JCT) stating:

"For the first six months of 2009, and just for liquid fuel derived from biomass, more than $2.5 billion in cash payments has been claimed. The bulk of that $2.5 billion is attributable to paper manufacturers using “black liquor” and a small quantity of diesel fuel in their boilers (a stationary fuel use). Because the paper
manufacturers have no excise tax liability, they receive the full amount of the claim as a cash payment from the Treasury."

That statement was the basis of tax expert Martin A. Sullivan's projection that the so-called Son of Black Liquor credits could be worth $25 billion to U.S. pulp mills. If six months of the black-liquor loophole was worth $2.5 billion, then the full year should be worth $5 billion. And because the new cellulosic biofuel producer program will be twice as generous and last three times longer, simple math put the potential payments at $30 billion. Sullivan estimated that only $25 billion would be paid out for black liquor because the program will require the credits to be used to offset income taxes.

The healthcare-reform legislation passed by the House earlier this month arrives at the same number. By proposing to close the Son of Black Liquor loophole, the House figured it was "finding" another $25 billion to help pay for new healthcare programs.

But based on the Third Quarter financials, publicly traded companies alone could create enough black liquor for $44 billion in Son of Black Liquor credits. Adding privately held companies would push the number close to $60 billion -- or about $50 billion if we accept Sullivan's reasonable assumption that a small portion of the claims would not be paid out.

Using the JCT estimate to project the size of the black liquor or Son of Black Liquor credits failed for two reasons:

Many companies were late to the black liquor party. Few were mixing diesel into their black liquor at the beginning of the year, and some didn't start until March.

Because of uncertainty about whether the credits are taxable income, some companies are not claiming the credits as they are earned but rather are waiting to include them with their 2009 income tax returns. Buckeye Technologies's Third Quarter financial report explains why: "We have treated the credits received in cash as taxable income and the income tax credits as non-taxable income."

Publicly traded pulp and paper companies have earned more than $4.7 billion in controversial black-liquor credits from the U.S. government during the first three quarters of the year, according to their financial reports.

The 21 companies generated enough of the pulp byproduct in the 3rd Quarter to receive more than $1.8 billion of the subsidies, according to an exclusive Dead Tree Edition analysis of Securities and Exchange Commission reports..About one-fourth of the country's kraft-pulp capacity is in the hands of privately held companies, which do not have to file financial reports with the SEC.

Here are the amounts earned by the companies. "Net of expenses" means the company subtracted out certain costs in its reporting of the "alternative fuel mixture credits" rather than stating the full amount of payments from the IRS

Sunday, November 15, 2009

The U.S. Postal Service's recent Summer Sale on Standard Class mail boosted catalog volume, according to a major paper company executive.

Richard D. Willett Jr., President and CEO of NewPage, cited the program as a significant factor in the recently improved outlook for coated paper.

“Several of our catalog customers took advantage of discounted rates on incremental volumes and increased their Third Quarter mailing volumes by more than 20 percent over prior budgets,” he said in a presentation to analysts on Tuesday. He also applauded USPS's recent decision to freeze postage rates in 2010, saying that would help demand improve.

Willett didn't indicate how much additional volume the Summer Sale caused for NewPage, which is North America's largest maker of coated paper. But with the company selling 708,000 tons of coated paper during the quarter, the Summer Sale would have had to generate millions of additional catalogs for NewPage customers for the program even to show up on the company's radar screen.

The Summer Sale, which offered discounts of up to 30% on incremental volumes of Standard mail, was not approved until early June, which most eligible mailers indicated was not enough time for them to plan and implement additional mailings. An exception was L.L. Bean, which said publicly the sale would cause it to mail an additional 10 million catalogs but agreed that the program was announced too late to have maximum impact.

A Postal Service Experiment
The sale was something of an experiment to test mailer response to temporary pricing incentives and the Postal Service's ability to administer them. USPS subsequently introduced a Fall Sale on First Class mail and has talked about a possible Winter Sale on the Standard class for early next year.

One lesson the Summer Sale taught postal executives is that it lacked good data on the mail volumes of its largest customers. Some mailers have multiple permits, sometimes under different names, and relying on vendors' mail permits is not uncommon.

Mailers had to use their own mailing permit to earn the Summer Sale discounts. That limited co-mailing and commingling of various companies' mail pieces because with Standard mail (unlike Periodicals) only a single permit can be used for a mailstream.

USPS has told Summer Sale participants that their discounts will be calculated and paid into their accounts late this month or perhaps early December.

Friday, November 13, 2009

Three of six panelists at a Time Inc. event Thursday night voted for Twitter as the top candidate for Person of the Year, Folio: reports. The other three voted for another non-human, The Economy, which seems like last year’s news: Anyone who was surprised by The Economy in 2009 wasn’t paying attention more than a year ago when the financial system was circling the drain.

If Time’s going to feature old news for Person of the Year, it might as well go with Obama again. One magazine executive jokes that Obama is “the new Jesus” because putting him on the cover does wonders for newsstand sales, just as a Christianity cover around Easter or Christmas always sells well for magazines like Time. (The latest word on the President, by the way, is that after blowing up balloons for one of his daughter’s birthday parties, he’s being nominated for the Nobel Prize in Physics.)

Panelist Bahbwa Walters suggested an interesting competitor for Bird of the Year – jailbird Bernie Madoff. Nope. If you’re going to go the evil route, select someone really evil – like maybe the Microsoft sadists who invented Vista or the idiot at Geico who decided to give less air time to the gecko so they could run those awful cavemen ads.

Speaking of Bird of the Year, some folks in the magazine business already awarded that informally to Rosie magazine back in 2001 for its infamous staph infection cover. (Hubba, hubba, Rosie in a bathrobe!). It sure looks as if that bandaged hand is flipping the Great Speckled Bird to the millions of former McCall’s subscribers who had recently been involuntarily switched over to her magazine.

For the record, I’m still using Google Reader instead of Twitter to track favorite Web sites and have only tweeted to my 53 followers about the newly posted articles. I should note that a few of those followers were clearly trying to get me to follow them in return so they could pelt me with Twitter spam. (What, by the way, do you call tweets that resemble spam? Twam? Spitter? Shredded tweet? Bird poop?)

As for Bird of the Year, I’d vote for the AFLAC duck if he’d start showing up more in magazine ads. Especially in my magazines.

Monday, November 9, 2009

Printers in recent months have been eagerly adopting software that enables them to reduce ink consumption, and in some cases their customers are jumping on the ink-savings bandwagon.

The concept of Gray Component Replacement (GCR) has been around for years but seems to have caught fire recently among commercial printers and newspaper publishers because of technological advancements. Ink savings of up to 20% have been reported on jobs having heavy four-color ink coverage.

Some magazine publishers and other print buyers have negotiated lower ink costs by applying, or allowing a printer to apply, GCR to their prepress files.

Explaining GCR requires a brief lesson in color theory: When combined, red light, green light, and blue light create white light, which is why they are called the three primary colors.

Ink is a filter for light being reflected off of paper. Cyan blocks red, magenta filters out green, yellow blocks blue, and black filters out all three primary colors. You can create a heavy black area with 100% coverage each of cyan, magenta, and yellow. But you could use less expensive ink, and less of it, if you just printed the area in 100% black.

In theory, GCR can take an area that is 60% cyan, 60% magenta, 40% yellow, and 0% black and create the same color at lower cost by converting it to something along the lines of 20%C-20%M-0%Y-40%K. But such “heavy GCR” can lead to a variety of print-quality problems.

That's why most printers use a GCR program that is less radical in substituting black ink for the chromatic inks, as shown in the image above (taken from Gordon Pritchard's Quality in Print blog.) The graphic shows a traditional separation on the left and a GCR separation on the right.

Besides the ink savings, printers and software vendors tout such benefits of GCR as faster makereadies, shorter drying times, less ink slinging, less paper waste, more efficient use of the earth's resources, and more stable color throughout a press run.

“For many printers, the increased color stability is a perfect compliment to the industry trend for a ‘by the numbers’ print manufacturing process,” Pritchard says in his excellent and well illustrated eight-part series on GCR. (To read the series, go to this link and then scroll down past the first two articles.)

The vast majority of print buyers pay for ink by the page rather than by the pound, so they don’t automatically reduce their ink costs by using GCR. But some have been able to negotiate lower ink costs by switching to GCR, with the printer in some cases getting a share of the savings.

Sunday, November 8, 2009

The Democrats' healthcare plan hasn't even been approved by Congress yet, but it already seems to be doing wonders for several hundred pulp-mill workers in Baileyville, Maine.

Pundits have been expressing surprise the past few days that the House version of healthcare reform includes a seemingly unrelated provision to block the so-called "Son of Black Liquor" loophole that could be worth $50 billion in tax credits to U.S. pulp mills. But as The Reel Time Report newsletter pointed out this week, that doesn't seem to be the first time that black-liquor subsidies have been entwined with healthcare politics.

The newsletter, published by Forestweb, suggests Democrats used the oldest trick in the book to get a woman to say yes -- plying her with liquor. In this case, the woman is Sen. Olympia Snowe (R-Maine), and the liquor is black liquor, an energy-rich byproduct of the kraft pulping process.

The following chronology from the past eight months tells the story:

March 5: Domtar Corp. announced it would indefinitely idle its Woodland pulp mill in Baileyville, ME in May, putting 300 people out of work.

Late March: Stock analysts and the news media revealed that some pulp companies had discovered a loophole in a U.S. law that was meant to encourage production of "green" motor fuels. By mixing a bit of diesel with black liquor, the companies were able to get government alternative-fuel payments equal to one-third to one-half the market value of the pulp they produced. See Pulp Fiction: Eco-Credits for Black Liquor.

April 5: Word started circulating that Sen. Max Baucus (D-Montana), chairman of the Senate Finance Committee, wanted to close the black-liquor loophole before its scheduled expiration at the end of this year. Reports indicated that legislation, supported by the Obama Administration, was imminent.

April 6: Sen. Snowe visited the Woodland mill and told workers that her goal was to save the mill.

April 23: "The black liquor tax credit is crucial to the survival of the paper industry, and to maintain and create jobs," said Sen. Snowe as she joined joining several other senators from pulp-making states to urge continuation of the credits. NewPage, Verso, and Sappi also own kraft pulp mills in Maine.

June 10: Domtar announced it would reopen the Woodland mill, partly because of black-liquor credits.

June 11: Baucus and Sen. Chuck Grassley (R-Iowa) released a draft of legislation that would close the black-liquor loophole.

Sept. 16: After months of Finance Committee work on the subject, Baucus introduced his version of healthcare-reform legislation.

Late September: Baucus and other Democrats backing healthcare reform stepped up their wooing of Sen. Snowe because she was the only Republican member of the Finance Committee who was not clearly opposed. A yes vote by Sen. Snowe, some said, would kill any hopes of a Republican filibuster if the legislation made it to the Senate floor.

Nov. 5: The Reel Time Report published a special report estimating that about $6 billion in black-liquor credits have been paid out to U.S. pulp mills this year and that the total will surpass $8.5 billion by the end of the year. If anything, the estimates appear to be a bit low because in some cases the newsletter used companies' reports of black-liquor credits "net of expenses" rather than the full, pre-tax amount of the credits.

Nov. 8: As of this date, the Baucus-Grassley draft on black liquor has not been introduced. The Reel Time Report notes that Baucus and other Democratic critics of the credits "became quiet" at the same time that Snowe "took up the cause of the kraft pulp producers." The newsletter adds, "The point is that Senator Snowe was the key that kept this money flowing."

Never mind that closing the loophole would not add any money to the federal budget, just prevent the government from doling out funds that weren't in the budget. And never mind that the Son of Black Liquor loophole probably doesn't even exist because EPA regulations won't allow it. (See Will the EPA Stop 'Son of Black Liquor'?)

With the kind of Alice in Wonderland accounting that occurs only in Washington, House Democrats can claim they found a way to help pay for healthcare legislation and to prevent a continuation of controversial pulp-mill subsidies. But if Democrats once again find themselves coveting some key moderate votes from paper-producing states, don't be surprised to see Son of Black Liquor rise miraculously from the dead.

Wednesday, November 4, 2009

With AbitibiBowater likely to remain under bankruptcy protection well into next year, a Canadian court has approved additional financing for the giant papermaker.

The company received permission Friday from a Montreal Superior Court to increase its debtor-in-possession (DIP) financing from $140 million to $370 million, despite the objections of some creditors.

Ernst & Young Inc., the court-appointed monitor, recommended approval of the DIP financing because it believes AbitibiBowater will remain under bankruptcy protection until at least late next summer. The accounting firm told the court that AbitibiBowater, North America's largest newsprint maker, projects negative cash flow of $70 million next year.

AbitibiBowater was hoping to exit bankruptcy protection in just a few months. But Ernst & Young says “it will take a number of months to complete the business plan and consider all of the restructuring scenarios, negotiate the Plan of Arrangement, raise exit financing, conduct creditor meetings, complete negotiations with employee groups and complete all of the other tasks required to emerge” from bankruptcy protection.

The company’s liquidity requirements “are highly dependent upon the market price and demand for paper and wood products as well as the exchange rate of the Canadian dollar relative to the U.S. dollar,” notes the report.

AbitibiBowater’s projections assume that announced newsprint price increases of $120 per ton from the August low will be implemented by the first of the year and then level off. That is more conservative than independent projections from RISI, which show newsprint prices continuing to rise during 2010.

But the projections also assume an exchange rate of 1 Canadian dollar to 90 U.S. cents, while in recent weeks the Canadian dollar has been a few cents stronger. With each penny in the exchange rate equating to $17 million in annual cash flow and the recent volatility in the U.S. dollar, AbitibiBowater needs access to additional DIP funds so that it can weather fluctuations in currency and paper markets, the Ernst & Young report says.

Meanwhile, a provincial official has made vague comments in recent days about Quebec possibly investing in AbitibiBowater, and a Canadian union has delayed contract negotiations until it gets resolution on the company’s $1.3 billion in unfunded pension liabilities.

AbitibiBowater (AKA AbitibiUnderwater) entered bankruptcy protection in April and has subsequently been damaged even further by declining paper prices and the strengthening Canadian currency.

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